- In MACRO, MARKETS & CONSUMER NEWS, Trump talks tough, the EU races to protect, markets rise on optimism and consumers pay back debt
- In TRANSPORT-RELATED NEWS, Airlines chart a return, P&O says no cruises until October, Lyft sees an uplift and car companies call for a scrappage scheme
- In INDIVIDUAL COMPANY NEWS, Warner Music is about to float in the US, Microsoft and Zoom power on and Travelodge aims for a CVA
- AND FINALLY, I bring you a heart-warming story about some brilliant US teens…
MACRO, MARKETS & CONSUMER NEWS
So Trump talks tough, the EU races to protect against outsider takeovers, markets and oil rise on hope and consumers save under lockdown…
Trump hopes tough stance on crime will propel him to election victory (Financial Times, Demetri Sevastopulo) shows that the President is talking about getting tough on the current civil rights unrest by deploying “thousands of heavily armed soldiers” to deal with what he calls angry mobs. He told governors they were being “weak” and called for them to “dominate” the streets. * SO WHAT? * This is just Trump being Trump. Given the devastating effect that the coronavirus has had on the US economy, it seems he’s de-emphasising his economic credentials and moving back to being “law and order” Trump in the run-up to the presidential election. David Gergen, a former adviser to four presidents, observed that he’s using the current unrest to push his handling of the coronavirus further down the front page of the news.
In EU seeks to curb state-backed foreign rivals (Financial Times, Sam Fleming, Javier Espinoza and Michael Peel) we see that Brussels is trying to conjour up new powers to review and block takeovers of European companies by state-supported foreign companies. The proposals are as yet unfinalised but the European Commissions is due to release a white paper on this later this month. This comes only a few weeks after Margrethe Vestager, the EU competition chief, called for European countries to buy stakes in companies to fend off approaches from outsiders. The EU trade commissioner and Phil Hogan (he’s Irish, in case you were wondering!), followed that up by encouraging trade ministers to co-operate in screening bids, warning that a takeover could have repercussions on other countries as well. * SO WHAT? * This comes at a tricky time as there will no doubt be lots of trade negotiations going on between various countries. The problem is that there will be lots of companies who will fail if they don’t get a cash injection from an outsider – so does that mean that Brussels is going to make an effort to bail them out, or would it rather let them die than them falling into Chinese hands?
Global stocks and oil extend gains on economic recovery hopes (Financial Times, Hudson Lockett) shows how markets and oil prices have strengthened on hopes of a global economic recovery. Investors are also hoping for
more economic support from the ECB when it meets up later this week and oil prices were up expectations that OPEC+ nations would extend production cuts for another month. * SO WHAT? * This is all lovely, but it seems to me that markets are detaching from reality at the moment as unemployment is still high, manufacturing is nowhere near full capacity and many in the services sector have been decimated (not to mention the fact that there still is no cure). One of the main differences between the covid-19 crisis and previous crises is the swift, big and co-ordinated nature of central bank response around the world to stimulate economies but it seems to me that a lot of the current market moves are based on hopes rather than reality. I hate to say it but I think that there is going to be a big shock around the corner when businesses go bust because they can’t cope with the practicalities of social distancing and furloughing comes to an end (which it has to). Let’s hope it doesn’t come to that.
Meanwhile, Companies load up on debt as UK households pay off record £7.4bn (Daily Telegraph, Russell Lynch and Lucy Burton) highlights interesting borrowing and spending patterns during lockdown as businesses borrowed money to get themselves through and households paid back debt. On the business side, the Institute of Directors is calling for corporate borrowing to be treated like student loans in that businesses should only have to start to repay when their earnings hit a certain level. On the household side of things, consumers paid back £19.1bn verses people borrowing £11.8bn. Savings deposits trebled versus the average of the previous six months. * SO WHAT? * This is pretty amazing I think and it would suggest that there is a huge amount of spending potential out there if and when people start to feel more confident. Now the Bank of England has recently mooted the possibility of negative interest rates – and if that becomes the case, people may feel that they HAVE to spend because their savings won’t be doing anything. Unfortunately, I think that this will widen the divide between the “haves” (who have hung on to their jobs) and the “have-nots” (who have missed out and lost theirs) who don’t have the money to pay for anything. Having said that, over time, higher spending should eventually result in more jobs. I think there is a delicate balance to be made here and if the government gets the timing right recovery could happen quicker than everyone is expecting. Get it wrong, though, and there could be more disaster to come. At least there is the POSSIBILITY of coming out of this reasonably quickly. For the moment, though, UK shops slash prices as coronavirus causes sales to plummet (The Guardian, Richard Partington) shows what retailers are currently up against as consumers continue to hunker down.
We take a quick look at the latest developments for those involved in travel over air, sea and land…
Airlines shrug off threat of quarantine by adding flights (Daily Telegraph, Simon Foy) shows that airlines are increasing flight schedules in anticipation of the 14-day quarantine thing being abandoned and replaced by “air bridges” (travel agreements between countries that are deemed to be “low risk”). EasyJet said it would be start flying again on 75% of its network by the end of August and Ryanair recently said it would get 40% of its planes flying again in June, ramping up to 60% in August and September. * SO WHAT? * Flying faces a difficult immediate future as I think consumers are going to need a lot of convincing to fly somewhere – even if it is short-haul and heavily discounted. Long-haul and business flying is likely to take even longer to get going – and in the meantime there will be a lot of pain as job losses are likely to continue in anything to do with the airline industry. Having said that, a scrapping of the 14-day quarantining will help a lot in terms of making the prospect more attractive.
P&O Cruises will not set sail again until October owing to coronavirus (The Guardian, Gwyn Topham) shows that the embattled cruise operator will not sail until October 15th, basically cancelling its summer season. P&O is part of the Carnival group, which had previously said it would pause operations until the end of July, but it is now looking at
tightening up its operations so that it can make a confident restart. For now, it said that it would give existing customers a voucher worth 125% of their original booking in order to keep them keen.
Meanwhile, on dry land, Lyft says demand picking up as covid-19 restrictions ease (Wall Street Journal, Micah Maidenberg) heralds some positive signs, although business levels are still way below normal levels. The company said last month that it would cut about 17% of its workforce, furlough employees and cut pay. It’s good to see that there are positive signs in terms of business, but it’s too early to celebrate right now.
Motor sector seeks scrappage deal for diesel and petrol cars (The Guardian, Gwyn Topham) shows that the UK automotive industry is lobbying hard to get a potential £1.5bn scrappage scheme off the ground to stimulate demand for cleaner vehicles. The plans being discussed at the moment involve taking £2,500 off the price of a car, which they estimate will put an additional 600,000 new cars on the road. The industry body, the Society of Motor Manufacturers and Traders (SMMT), argues that doing this would bring a net benefit of about £3 for every £1 it spends via new tax receipts from VAT and excise duty, get more manufacturing employees off furlough and avoiding redundancies. * SO WHAT? * This sounds like a reasonable plan in theory because the last time a scrappage scheme was introduced in the wake of the financial crisis, it lead to hundreds of thousands of extra vehicle sales. The SMMT is pushing for a scrappage scheme to be applied to ALL vehicle types (90% of cars sold last year were purely petrol or diesel) but many others are saying that this is a great opportunity to incentivise the purchase of greener vehicles.
INDIVIDUAL COMPANY NEWS
Warner Music’s about to float, Microsoft and Zoom chase similar objectives and Travelodge targets a CVA…
Warner Music to float in US in first big-name launch since pandemic (The Guardian, Mark Sweney) highlights a major flotation due to hit later this week as the world’s third biggest record company will list on the Nasdaq at a valuation of about $13.3bn. Warner Music has benefited from lockdown as streaming revenues have increased by 12% in April alone. ZoomInfo Technologies (no – not THAT Zoom you are thinking of!) is also going to IPO tomorrow, for a valuation of around $7bn, in what will be the biggest new tech listing of the year so far. The Vancouver-based marketing data company mines public data on private companies and sells it on to marketing specialists. * SO WHAT? * This does go to show that there are pockets of confidence around despite the generally desolate landscape.
Talking about coronanvirus “winners”, Zoom lifts full-year sales outlook as coronavirus boosts demand (Wall Street Journal, Aaron Tilley) highlights the company’s strong first quarter numbers as videoconferencing takes over
everyone’s life! Despite some troubles with security issues, Zoom seems to have powered through and now its share price has more than tripled so far this year. Just to give you an idea of perspective, the company said that it saw over 300million daily meeting participants in the latest quarter versus 10million at the end of last year before the pandemic hit. Microsoft takes on Zoom and Slack in a battle for your work computer (Wall Street Journal, Aaron Tilley) looks at how Microsoft has seized opportunities to convert Zoomers to Teams and how it is using aggressive tactics to stop Slack from getting a toehold. * SO WHAT? * Whatever happens, I really think that the way we work has changed for good. FWIW, I believe that Microsoft will reign supreme because of the breadth of its product suite but that there is also still room for the other players like Zoom and Slack to consolidate the gains they’ve made during lockdown.
On the other hand, Travelodge braced for CVA rent row (The Times, Dominic Walsh and Louisa Clarence-Smith) highlights a proposed CVA that would reduce its rent bill by 38% for a fixed period of time and give the troubled budget hotel operator breathing room to continue. Landlords won’t like this and there is a possibility of push-back. It’s by no means certain that Travelodge will pull through this unscathed as CVAs do not guarantee long term survival as we have already seen in the restaurant sector…
…in other news…
Given what’s going on at the moment, I thought it would be good to bring your attention to a positive story in Two local teens grocery shopped for their grandparents. Soon it became a national volunteer effort (The Washington Post, Teddy Amenabar https://tinyurl.com/y7xtt9sq). What a fantastic initiative!
Some of today’s market, commodity & currency moves (as at 0735hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!
|FTSE 100 *
|Dow Jones *
|S&P 500 *
|Oil (WTI) p/b
|Oil (Brent) p/b
|Gold Per t/oz
(markets with an * are at yesterday’s close, ** are at today’s close)